Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No

Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). [X] Yes [ ] No

Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large
accelerated filer [ ]

Accelerated
filer [ ]

Non-accelerated
filer [ ]

Smaller
reporting company [X]

(Do
not check if smaller reporting company)

Emerging
growth company [X]

If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes [X] No

As
of November 19, 2019, the registrant had 80,853,142 shares of common stock, par value $0.001 per share, outstanding.

Common Stock $.001 par value 100,000,000 authorized; 80,853,142 and 45,235,533 issued and outstanding; 0 and 799,770 authorized but not issued as of September 30, 2019 and December 31, 2018, respectively

80,854

46,036

Additional paid-in capital

83,073,624

49,750,553

Retained Deficit

(71,618,632

)

(42,322,236

)

Equity Attributable to GSRX Industries Inc.

11,535,847

7,474,354

Non-Controlling Interest

2,135

401,789

Total Stockholders’ Equity

11,537,982

7,876,143

Total Liabilities and Stockholders’ Equity

$

15,098,346

$

8,600,645

The
accompanying footnotes are an integral part of these consolidated financial statements.

3

GSRX
Industries Inc.

Consolidated
Statements of Operations

For
the Nine Months Ended September 30, 2019 and 2018

For the Three Months Ended

For the Nine Months Ended

September 30, 2019

September 30, 2018

September 30, 2019

September 30, 2018

“Unaudited”

“Unaudited”

“Unaudited”

“Unaudited”

Revenues

Revenues

$

2,757,158

$

664,400

$

9,062,462

$

1,020,026

Cost of Goods Sold

1,431,656

409,348

4,910,120

610,526

Gross Profit

1,325,502

255,052

4,152,342

409,500

Operating Expenses

Consulting Fees

458,233

282,673

1,324,969

957,496

General and Administrative

1,414,838

1,274,138

4,648,194

2,818,371

Abandonment of Option to Purchase Building

-

-

200,000

-

Write of leasehold improvements and rent deposits

-

-

654,426

-

Professional Fees

155,375

370,533

703,408

697,410

Depreciation Expense

56,977

47,865

158,146

70,826

Stock Based Compensation (Note 3)

Consulting Fees

16,547,800

222,847

17,182,907

9,673,347

Share Exchange and Ancillary Rights Agreement

-

-

1,166,700

-

Director Fees

47,000

-

77,087

300,000

Professional Fees

282,000

-

690,000

-

Total Stock based compensation

16,876,800

222,847

19,116,694

9,973,347

Total Operating Expenses

18,962,223

2,198,056

26,805,837

14,517,450

Loss from Operations

(17,636,721

)

(1,943,004

)

(22,653,495

)

(14,107,950

)

Other Income (Expenses)

Rent Income

31,500

42,028

88,756

50,613

Unrealized loss on investments

(6,442,370

)

-

(7,244,476

)

-

Total Other Income (Expenses)

(6,410,870

)

42,028

(7,155,720

)

50,613

Loss From Operations Before
Provision for Income Taxes

(24,047,591

)

(1,900,976

)

(29,809,215

)

(14,057,337

)

Provision for Income Taxes (Note 4)

-

-

-

-

Net Loss

(24,047,591

)

(1,900,976

)

(29,809,215

)

(14,057,337

)

Net Loss Attributable to Non-Controlling Interest

(34,001

)

(245,231

)

(512,819

)

(409,701

)

Net Loss Attributable to GSRX Industries Inc.

$

(24,013,590

)

$

(1,655,745

)

$

(29,296,396

)

$

(13,647,636

)

Basic loss per share

$

(0.33

)

$

(0.04

)

$

(0.49

)

$

(0.32

)

Weighted average number of common shares outstanding

73,793,792

42,991,326

59,764,667

44,456,536

The
accompanying footnotes are an integral part of these consolidated financial statements.

The
accompanying footnotes are an integral part of these consolidated financial statements.

6

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

1.
Nature of Operations

GSRX
Industries Inc. (“the Company”) is a Nevada corporation formed under the name Cyberspace Vita, Inc. (“Cyberspace”)
on November 7, 2006. Cyberspace’s initial business plan was related to the online sale of vitamins and supplements. On May
11, 2017, the Company entered into a share exchange agreement (the “Exchange Agreement”) with Peter Zachariou, the
majority shareholder of Cyberspace (the “Shareholder”), Project 1493, LLC, a limited liability company organized under
the laws of the Commonwealth of Puerto Rico (“1493”), and Peach Management, LLC (“Peach”) the sole member
of 1493 (the “Member”), pursuant to which the Member transferred all of the outstanding membership interests of 1493
to the Company in exchange for 16,690,912 restricted shares of common stock of the Company (the “Exchange Shares”),
warrants to purchase up to 3,000,000 shares of common stock at an exercise price of $0.50 per share for a period of three (3)
years from the date of issuance (the “Exchange Warrants”) and 1,000 shares of Series A Preferred Stock that grants
the holders thereof fifty-one percent (51%) voting power (the “Preferred Shares” and together with the Exchange Shares,
and the Exchange Warrants, the “Exchange Securities”). As a result of the Exchange Agreement, 1493 became a wholly-owned
subsidiary of the Company, and the business of 1493 became the business of the Company. At the time of the Exchange Agreement,
Cyberspace was not engaged in any business activity. The Company accounted for the acquisition of 1493 as a reverse merger and
all prior periods presented are those of 1493.

The
Company is in the business of acquiring, developing and operating medical cannabis dispensaries throughout Puerto Rico; cannabis
related businesses in California and real estate leasing in Puerto Rico and California.

The
Company entered into the Final Purchasing Agreements (“FPA”) with holders
of licenses to operate medicinal cannabis dispensaries in Puerto Rico. Pursuant to the FPAs, the Company acquired all of the legal
rights, permits, pre-qualification licenses, and leases for five (5) medicinal cannabis dispensaries. The pre-qualification licenses
do not allow the holder to open a dispensary, but instead offers the opportunity to go through the qualifying steps in order to
obtain the requisite operating permit necessary to open the dispensary. Such steps include proving financial viability, background
checks, application of the final permit, proof of certificate of occupancy, employment of a security firm, installation of security
cameras, and other similar compliance matters.

The
Company operates six dispensaries as follows:

Location

State/Territory

Date Opened

Purchase Price

Dorado

Puerto Rico

March 28, 2018

$

100,000

Fajardo

Puerto Rico

December 28, 2018

$

100,000

Carolina

Puerto Rico

June 1, 2018

$

100,000

Hato Rey

Puerto Rico

June 1, 2018

$

128,000

San Juan

Puerto Rico

October 2, 2018

$

75,000

Point Arena

California

April 2, 2018

$

350,000

The
FPA’s have an indefinite life and are not being amortized.

Liquidity,
Financial Condition and Management Plan

Historically,
the Company had net losses and negative cash flows from operations. The Company continues to experience liquidity constraints
due to the continuing losses.

7

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

We have secured additional funding from
our parent company, Chemesis, until we are able to raise revenues to a point of positive cash flow, which is anticipated in 2020.
We believe our existing and available capital resources will be sufficient to satisfy our funding requirements through the fourth
quarter of 2020. However, we continue to evaluate various options to further reduce our cash requirements to operate at a reduced
rate, as well as options to raise additional funds.

2.
Summary of Significant Accounting Policies

Basis
of Presentation

The
consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted accounting principles have been omitted. However, in the opinion
of management, all adjustments (which include only normal recurring adjustments, unless otherwise indicated) necessary to present
fairly the consolidated financial position and results of its operations for the periods presented have been made. The results
for interim periods are not necessarily indicative of trends or of results to be expected for the full year. These consolidated
financial statements should be read in conjunction with the financial statements of the Company for the year ended December 31,
2018 (including the notes thereto) set forth in Form 10-K filed with the Securities and Exchange Commission on April 16, 2019.

Principles
of Consolidation

The
consolidated financial statements through September 30, 2019 include the accounts of the Company and the following entities, all
of which have fiscal year ends of December 31. (Note 1).

●

100%
owned subsidiary, Project 1493, LLC;

●

100%
owned subsidiary, Andalucia 511, LLC;

●

51%
majority owned subsidiary, Spirulinex, LLC;

●

55%
majority owned subsidiary, Sunset Connect Oakland, LLC;

●

55%
majority owned, Green Spirit Essentials, LLC;

●

100%
owned subsidiary, Green Spirit Mendocino, LLC; and

●

100%
owned subsidiary, 138 Main Street PA, LLC.

●

100%
owned subsidiary, GSRX SUPES, LLC

●

100%
owned subsidiary, Point Arena Supply Co., LLC

●

100%
owned subsidiary, Ukiah Supply Company, LLC

●

100%
owned subsidiary, Pure and Natural, LLC

●

94%
owned subsidiary, Point Arena Manufacturing, LLC

●

100%
owned subsidiary, Point Arena Distribution, LLC

●

51%
majority owned subsidiary, Pure and Natural-Lakeway, LLC

●

51%
majority owned subsidiary, Pure and Natural One-TN, LLC

●

95%
owned subsidiary, Green Room Palm Springs, LLC

All
intercompany transactions have been eliminated in the consolidated financial statements.

8

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

Use
of Estimates and Assumptions

The
preparation of the consolidated financial statements that are in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements.

Cash
and Cash Equivalents

The
Company considers all cash on hand, cash in banks and all highly liquid debt instruments purchased with a maturity of three months
at purchase or less to be cash and cash equivalents. At times, cash and cash equivalent balances at a limited number of banks
and financial institutions may exceed insurable amounts. At September 30, 2019 the Company had $0 in excess of FDIC depository
insurance coverage. The Company believes it mitigates its risks by depositing cash or investing in cash equivalents in major financial
institutions.

Cash
held in escrow, in the name of the Company, is held by Gunnison Bank (“Gunnison”). The escrow account was established
to hold the deposits from the sale of equity in subsidiaries and hold funds for businesses under subscription agreements. There
are no restrictions on the funds held by Gunnison on the Company’s behalf.

Investments,
fair value

On
March 30, 2019 the Company entered into a Share Exchange Agreement (the “Share Agreement”) and an Ancillary Rights
Agreement (the “Ancillary Agreement”) with Chemesis International Inc., a British Columbian Corporation (“CADMF”).
In the Share Agreement, the Company received 7,291,874 restricted shares of common stock of CADMF. Fair value of the investment
as of September 30, 2019 was $4,422,522. CADMF is quoted on the OTC market and closed on Monday, September 30, 2019 at $0.6065
per share.

Investments,
cost method

Pure
and Natural, LLC made a $50,000 investment on January 4, 2019 for a 10% equity and profits interest in The Zen Stop, LLC. The
Zen Stop is a mobile wellness business called “Zen Stop.”
The investment is carried at the cost basis as it is a private company and fair value cannot be determined.

Pure
and Natural, LLC purchased 25,167 membership units in Buzznog, LLC for $20,000 on March 6, 2019. The investment is carried at
the cost basis as it is a private company and fair value cannot be determined.

Revenue
Recognition

In
accordance with the new guidance, the Company recognizes revenue at an amount that reflects the consideration that the Company
expects to be entitled to receive in exchange for transferring goods or services to its customers. The Company’s policy
is to record revenue when control of the goods transfers to the customer.

In
limited instances when products are sold under consignment arrangements, the Company does not recognize revenue until control
over such products has transferred to the end consumer.

9

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

The
Company incurs costs associated with product distribution, such as freight and handling costs. The Company has elected to treat
these costs as fulfillment activities and recognizes these costs at the same time that it recognizes the underlying product revenue.
As this policy election is in line with the Company’s previous accounting practices, the treatment of shipping and handling
activities under Topic 606 did not have any impact on the Company’s results of operations, financial condition and/or financial
statement disclosures.

The
following table presents the Company’s revenues disaggregated by type and by state/territory:

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2019

2018

2019

2018

Revenues by Type

Wholesale

$

852

$

9,029

$

51,180

$

107,281

Retail

2,756,306

655,371

9,011,282

912,745

Total

$

2,757,158

$

664,400

$

9,062,462

$

1,020,026

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

2019

2018

2019

2018

Revenues by State/Territory

California

$

175,810

$

136,457

$

409,803

$

356,918

Tennessee

12,814

$

-

38,479

-

Texas

2,648

-

90,915

-

Puerto Rico

2,565,886

527,943

8,523,265

663,108

Total

$

2,757,158

$

664,400

$

9,062,462

$

1,020,026

Accounts
Receivable

The
Company carries its accounts receivable at their estimated realizable amounts and periodically evaluates the credit condition
of its customers. The allowance for uncollectible accounts receivable is based on the Company’s historical bad debt experience
and on management’s evaluation of collectability of the individual outstanding balances. As of September 30, 2019, the Company
had not identified any uncollectible accounts.

Inventory

The
Company’s inventory is stated at the lower of cost or market. Inventory consists of cannabis products, such as flower, edibles,
creams, oils and cannabis accessories as pipes, bowls and cartridges; and CBD products, such as soft gels, tinctures, balms, pain
cream and vape pens.

Inventory
is comprised of the following items:

As of

As of

September 30, 2019

December 31, 2018

Finished goods – flower

$

49,668

$

137,592

Finished goods – cannabis products

270,748

191,468

Finished goods – CBD products

113,866

31,400

Total

$

434,282

$

360,460

As
of September 30, 2019, the Company had paid for inventory which had not been delivered in the amount of $356,868.

10

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

Fixed
Assets

Fixed
assets are recorded at cost and are depreciated using the straight-line method over estimated useful lives as follows:

Type of Asset

Estimated Life

Furniture, Fixtures and Equipment

5 – 10 years

Building and Leasehold improvements

5 - 25 years

Intangible
Costs

The
Company has incurred costs related to Patent Application Costs during the year ended December 31, 2018 and quarter ended September
30, 2019, consisting of $1,943,934 of legal fees. The patent applications will continue to be filed over the next several quarters.
As the patents have not been issued as of September 30, 2019, no amortization has been applied against the patent costs. If the
patents are approved, the Company will amortize the patent application costs over their useful lives. If the patents are not approved,
the patent application costs will be expensed and charged to operations. (Note 7).

Share
based Compensation

Compensation
cost relating to share-based payment transactions (including the cost of all employee stock options) is required to be recognized
in the consolidated financial statements and covers a wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. That cost is measured
based on the estimated fair value of the equity or liability instruments issued. (See Note 3).

Fair
Value of Financial Instruments

The
carrying value of the Company’s current liabilities approximates fair value because of the short maturity of these instruments.
Unless otherwise noted, it is management’s opinion the Company is not exposed, except for cash balances in excess of the
FDIC depository insurance coverage, to significant interest, currency or credit risks arising from these financial instruments.

Income
Taxes

The
Company follows the accrual method of accounting for income taxes. Under this method, deferred income tax assets and liabilities
are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values
and their respective income tax basis (temporary differences). The effect on the deferred income tax assets and liabilities of
a change in tax rates is recognized in income in the period that includes the enactment date. The Company was organized under
the laws of Nevada and therefore will be taxed at statutory U.S. federal corporate income tax rates.

11

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

Basic
Earnings per Share

The
Company computes net loss per share in accordance with FASB ASC 260 “Earnings per Share”, which specifies the computation,
presentation and disclosure requirements for earnings (loss) per share for entities with publicly held common stock.

Basic
net loss per share amounts are computed by dividing the net loss by the weighted average number of common shares outstanding.
Potentially dilutive securities have been excluded from the Company’s earnings per share calculation due to the effect of
being anti-dilutive. The total number of potentially dilutive securities which have been excluded is 6,995,796. (Note 3).

Recent
Accounting Pronouncements

As
of September 30, 2019 and through November 20, 2019, there were several new accounting pronouncements issued by the Financial
Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management
does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s
financial position or future operating results. The Company will monitor these emerging issues to assess any potential future
impact on its financial statements.

In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires all leases that have a term of over
12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset
initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases
on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating
lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. On January 1,
2019 we adopted this standard on our consolidated financial statements. During the nine months ended September 30, 2019, the Company
recognized an additional $295,810 of rental expense charged to operations due to the adoption of the standard.

3.
Equity

The
following table illustrates the common stock transactions for the nine months ended September 30, 2019:

Category

Common Shares

Cash, common shares

1,433,600

Services, common shares

21,717,241

Shares issued in Share Exchange and Ancillary Agreement

11,666,998

Total

34,817,839

During
the nine months ended September 30, 2019, issued 1,433,600 shares of the Company’s .001 par value common stock, resulting
in net proceeds of $1,183,000.

During
the nine months ended September 30, 2019, consultants received 21,717,241 shares of common stock for legal, professional, consulting
and advisory services provided for the Company with a fair market value of $16,753,194.

12

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

During
the nine months ended September 30, 2019, the Company entered into a Share Exchange Agreement and an Ancillary Rights Agreement
with Chemesis International Inc. In the Share Agreement, the Company issued 11,666,998 restricted shares of the Company’s
common stock.

During
the nine months ended September 30, 2019, the Company authorized the issuance of 12,915,000 shares of common stock to Dorado Consulting,
LLC, a related party (Note 6) for services rendered to the Company with a fair market value of $9,710,500.

During
the nine months ended September 30, 2019, the Company authorized the issuance of 3,000,000 shares of common stock to Leslie Ball,
Chief Executive Officer (Note 6), for services rendered to the Company with a fair market value of $2,269,000.

During
the nine months ended September 30, 2019, the Company authorized the issuance of 3,315,000 shares of common stock to Thomas Gingerich,
Chief Financial Officer (Note 6), for services rendered to the Company with a fair market value of $2,663,500.

Acceleration
of Shares due to Change of Control

On
July 31, 2019, the Board of Directors elected to effectuate Section 9 of Consulting Agreements to accelerate 14 quarters of bonus
shares due to change of control. A total of 19,900,000 shares were issued at a fair market value of $14,925,000. The shares are
included in the amounts in the preceding paragraph. Shares issued are as follow:

Dorado Consulting, LLC, a related party

12,800,000

Les Ball

2,900,000

Tom Gingerich

2,900,000

GP Consulting, LLC

600,000

John Grainer

700,000

Series
A Preferred Stock

The
holder of Series A Preferred Stock shall have full voting rights and shall vote together
as a single class with the holders of the Company’s common stock. The holder of Series A Preferred Stock is entitled to
fifty-one percent (51%) of the total votes on all matters brought before shareholders of the Company, regardless of the actual
number of shares of Series A Preferred Stock then outstanding. In addition, the Company is prohibited from issuing any other class
of preferred stock without first obtaining the prior approval of the holders of Series A Preferred Stock. All Series A Preferred
stock issued and outstanding is held by Peach Management, LLC, a related party.

Blank
Check Preferred Stock

The
board of directors will be authorized, subject to any limitations prescribed by law, without further vote or action by the common
stockholders, to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will
have the number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges
as shall be determined by the board of directors, which may include, among others, dividend rights, voting rights, liquidation
preferences, conversion rights and preemptive rights.

13

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

Warrants

As
of September 30, 2019, the Company had outstanding warrants to purchase 6,995,796 shares of common stock (the “Warrants”).
Each Warrant represents the right to purchase one share of common stock at various exercise prices per share for a period of two
(2) or three (3) years from the date of issuance.

Warrants Issued

Exercise Price

Expiration Date

May 11, 2017

6,038,462

$

.50

May 11, 2020

February 23, 2018

232,334

$

6.00

February 23, 2021

October 5, 2018

517,800

$

2.50

October 5, 2020

March 8, 2019

207,200

$

1.75

March 7, 2021

Total

6,995,796

The
Company may issue warrants to non-employees in capital raising transactions or for services. In accordance with guidance in ASC
Topic 718, the cost of warrants issued to non-employees is measured on the grant date based on the fair value. The fair value
is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis
over the period in which the Company expects to receive the benefit, which is generally the vesting period. No warrants were issued
for compensation during the period ended September 30, 2019.

Warrant
Modification

On
July 31, 2019 the Board of Directors approved the reduction of exercise price of certain warrants from $.50 to $.005 in order
to maintain certain officers and directors. As a result of the reduced exercise price, the Company recognized an additional $1,196,800
of compensation expense.

All
of the outstanding warrants granted were fully vested on the grant date.

January
2019 Stock Offering

In
January and February 2019, the Company entered into a subscription agreement (the “January Agreement”) with selected
accredited investors. Pursuant to the terms of the January Agreement, the Company offered up to $1,500,000 in units (each, a “Unit”
and collectively, the “Units”) at a purchase price of $1.25 per Unit (the “January Offering”). Each Unit
consisted of (i) one (1) share of the Company’s common stock, par value $0.001 per share (the “Shares”); and
(ii) warrants to purchase shares of the Company’s common stock, par value $0.001 per share (the “Warrants”).
The number of shares underlying each Warrant was equal to 33% of the number of Shares subscribed for by such Investor. The Warrants
are exercisable at any time on or after the date of issuance for a period of two (2) years at an exercise price per share equal
to $1.75. In the January Offering, the Company sold an aggregate of 621,600 Units, resulting in total gross proceeds of $777,000.
As a result, the Company issued to the investors a total of 621,600 Shares and 207,200 Warrants. The January Offering closed on
March 6, 2019.

Private
Placements

On
June 25, 2019, the Company conducted a private placement, pursuant to which it sold 400,000 shares of Common Stock, at a purchase
price of $0.50 per share, to an investor, resulting in net proceeds to the Company of $200,000. The shares were issued pursuant
to Regulation D under the Securities Act of 1933, as amended (the “Act”).

14

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

On
July 18, 2019, the Company conducted a private placement, pursuant to which it sold 412,000 shares of Common Stock, at a purchase
price of $0.50 per share, to an investor, resulting in net proceeds to the Company of $206,000. The shares were issued pursuant
to Regulation D under the Securities Act of 1933, as amended (the “Act”).

Sale
of Equity in Subsidiaries

On
March 29, 2019 the Company sold partial interests in its wholly owned subsidiaries to an investor as follows:

Subsidiary

% Sold

Amount Received

Point Arena Manufacturing, LLC

1.5

%

$

125,001

Point Arena Distribution, LLC

1.0

%

50,000

Green Room Palm Springs, LLC

1.5

%

158,571

Total

$

333,572

As
a result of the transaction, the Company reported $328,819 as additional paid in capital and $4,753 as included in non-controlling
interest.

On
April 29, 2019, the investor transferred his partial interest from Point Arena Distribution, LLC to Green Room Palm Springs, LLC.
The investor also contributed the unit price difference of $2,857.

On
June 10, 2019 the Company sold partial interests in its wholly owned subsidiaries to an investor as follows:

Subsidiary

% Sold

Amount Received

Point Arena Manufacturing, LLC

2.5

%

$

208,435

Green Room Palm Springs, LLC

2.0

%

211,428

Total

$

419,863

As
a result of the transaction, the Company reported $411,465 as additional paid in capital and $8,398 as included in non-controlling
interest.

During
the three months ended September 30, 2019 the Company sold partial interests in its wholly owned subsidiaries to an investor as
follows:

Subsidiary

% Sold

Amount Received

Point Arena Manufacturing, LLC

2.5

%

$

208,335

Green Room Palm Springs, LLC

1.0

%

105,714

Total

$

314,049

As
a result of the transaction, the Company reported $296,263 as additional paid in capital and $17,786 as included in non-controlling
interest.

On
March 30, 2019 the Company entered into a Share Exchange Agreement (the “Share Agreement”) and an Ancillary Rights
Agreement (the “Ancillary Agreement”) with Chemesis International Inc., a British Columbian Corporation (“CADMF”).
In the Share Agreement, the Company receives 7,291,874 restricted shares of common stock of CADMF and CADMF receives 11,666,998
restricted shares of the Company’s common stock. Closing date of the transaction was March 30, 2019. The exchange allows
a mutual leak out. Beginning six months after the closing date, the Company shall be able to sell up to 1,215,313 of the CADMF
shares and CADMF shall be able to sell 1,944,500 of the Company’s shares every six months, subject to compliance with any
applicable securities laws and stock exchange rules.

15

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

The
Ancillary Rights Agreement (“Agreement”) contains the following representations:

1)

CADMF
will be entitled to nominate and have one member to the Company’s Board of Directors, as long as CADMF holds 10% or
more of the Company’s issued and outstanding common shares. Likewise, the Company will be entitled to nominate and have
one member on the CADMF Board of Directors, as long as the Company holds 5% or more of the issued and outstanding common shares.

2)

If
the Company proposes to issue shares to raise capital, CADMF has a participation right to subscribe for and purchase such
number of shares to maintain its equity ownership percentage of the Company.

3)

The
Company will provide CADMF with the first right of refusal to produce any requested cannabis or hemp-based CBD products if
CADMF has production facilities in the jurisdiction the Company has the request (i.e. California or Puerto Rico). CADMF has
ten days to respond to the request of product. After that, the Company can request product from a third party.

4)

The
Agreement may be terminated by written agreement of the Company and CADMF or if CADMF ownership percentage decreases below
5% of the issued and outstanding shares of the Company.

The
Company recognized no compensation attributable to the Ancillary Rights Agreement during the period ended September 30, 2019.

Share
Exchange Agreement

Effective
August 28, 2019, eight shareholders of the Company into a Share Exchange Agreement with Chemesis International, Inc. (“Chemesis”),
pursuant to which the shareholders exchanged 42,534,454 common shares and 1,000 preferred shares of GSRX for 14,880,705 shares
of Chemesis. As a result of the exchange Chemesis owned 54,151,035 shares or 67.03% of the Company.

Non-Controlling
Interest

The
following schedule discloses the effects of changes in the Company’s ownership interest in its subsidiaries on the Company’s
equity:

Deferred
income taxes are reported using the liability method. Deferred tax assets are recognized for deductible temporary differences
and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

5.
Construction in progress

Construction
in progress includes direct and indirect expenditures for the construction and expansion of the Company’s facilities and
is stated at its acquisition cost. Independent contractors perform substantially all of the construction and expansion efforts
of our facility.

Construction
in progress includes construction progress payments, engineering costs, equipment not placed in service and other costs directly
related to the construction of the facilities. Expenditures are capitalized during the construction period and construction in
progress is transferred to the relevant class of property, plant and equipment when the assets are available for use, at which
point the depreciation of the asset commences.

6.
Related Party Transactions

The
Company entered into executive consulting agreements with its Chief Executive Officer (“CEO”) and Chief Financial
Officer (“CFO”) effective as of January 1, 2018. Pursuant to the agreement with the CEO, the Company agreed to pay
to the CEO a monthly fee of $20,000, plus expenses for his services and duties customarily performed by and customary to the role
of CEO. Pursuant to the agreement with the CFO, the Company agreed to pay to the CFO a monthly fee of $17,500, plus expenses for
his services and duties customarily performed by and customary to the role of CFO. On April 1, 2019, the Company entered into
an amended and restated executive consulting agreement with the CFO. Pursuant to the agreement, the Company agreed to pay the
CFO compensation as follows: (i) a monthly cash fee of $10,000, payable in accordance with the Company’s standard payroll
practices; and (ii) 75,000 restricted shares of the Company’s common stock, par value $0.001 per share, payable quarterly,
effective immediately.

Effective
July 1, 2019, the Company entered into an amended and restated executive consulting agreement with the CEO. Pursuant to the agreement,
the Company agreed to pay the Executive Chairman compensation as follows: (i) a monthly cash fee of $0 – $15,000, based
on the Company’s monthly revenues, payable in accordance with the Company’s standard payroll practices; and (ii) 200,000
restricted shares of the Company’s common stock, par value $0.001 per share, payable quarterly, effective immediately, and
(iii) an acceleration of 14 quarters of the quarterly shares upon a change of control in the Company.

Effective
July 1, 2019, the Company entered into an amended and restated executive consulting agreement with the CFO. Pursuant to the agreement,
the Company agreed to pay the Executive Chairman compensation as follows: (i) a monthly cash fee of $0 – $15,000, based
on the Company’s monthly revenues, payable in accordance with the Company’s standard payroll practices; and (ii) 200,000
restricted shares of the Company’s common stock, par value $0.001 per share, payable quarterly, effective immediately and
(iii) an acceleration of 14 quarters of the quarterly shares upon a change of control in the Company.

17

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

During
the nine months ended September 30, 2019, the CEO and CFO were paid $190,000 and $121,250, respectively.

On
July 24, 2018, the Company entered into an amended and restated consulting agreement with Peach Management, LLC, an entity controlled
by Mr. Christian Briggs, Chairman of the Board of Directors (the “Consultant”). Pursuant to the agreement, the Consultant
provides certain consulting services relating to the execution of the Company’s business plan as more fully described in
the agreement (the “Consulting Services”). On November 28, 2018, the agreement was assigned to Dorado Consulting,
LLC, an entity controlled by Mr. Christian Briggs. On April 1, 2019, the Company entered into an amended and restated executive
consulting agreement with the Dorado Consulting, LLC. In consideration of the Consulting Services, the Company agreed to pay to
the Consultant compensation as follows: (i) a monthly cash fee of $10,000, payable in accordance with the Company’s standard
payroll practices; and (ii) 150,000 restricted shares of the Company’s common stock, par value $0.001 per share, payable
quarterly, effective immediately.

Effective
July 1, 2019, the Company entered into an amended and restated executive consulting agreement with the Executive Chairman. Pursuant
to the agreement, the Company agreed to pay the Executive Chairman compensation as follows: (i) a monthly cash fee of $0 –
$15,000, based on the Company’s monthly revenues, payable in accordance with the Company’s standard payroll practices;
and (ii) 700,000 restricted shares of the Company’s common stock, par value $0.001 per share, payable quarterly, effective
immediately and (iii) an acceleration of 14 quarters of the quarterly shares upon a change of control in the Company.

During
the nine months ended September 30, 2019, Dorado was paid $66,000.

On
April 9, 2018 the Company entered into a consulting agreement with GP Consulting, LLC, an entity owned by Gabrielle Pinto, daughter
of Christian Briggs. GP Consulting, LLC, through its employee Gustavo Pinto, serves as the VP of Operations – Puerto Rico
(“VP Ops”). Pursuant to the agreement, Gustavo Pinto, , the Company agreed to pay to the VP Ops a monthly fee of $15,000,
plus expenses for services and duties customarily performed by and customary to the role of VP Ops.

Effective
July 1, 2019, the Company entered into an amended and restated executive consulting agreement with the GP Consulting. Pursuant
to the agreement, the Company agreed to pay the Executive Chairman compensation as follows: (i) a monthly cash fee of $15,000,
payable in accordance with the Company’s standard payroll practices; and (ii) 50,000 restricted shares of the Company’s
common stock, par value $0.001 per share, payable quarterly, effective immediately.

During
the nine months ended September 30, 2019, GP Consulting was paid $120,330.

Natural
Ventures Puerto Rico, a subsidiary of Chemesis, has been advanced $356,868 for future cannabis products to be delivered.

18

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

7.
Patent Application Costs and Intangible Assets

The
Company has applied for patents which it believes are a new, original and ornamental design for Oral Consumable Flakes. The patents
use the methods of preparing solulizable, encapsulated plant-based compositions.

During
the nine months ended September 30, 2019, the Company did not incur any legal and associated costs for the multiple patent applications.

As
the patents have not been issued as of September 30, 2019, no amortization has been applied against the patent costs. If the patents
are approved, the Company will amortize the patent application costs over their useful lives. If the patents are not approved,
the patent application costs will be expensed and charged against income.

8.
Commitments and Contingencies

Lease
Commitments

The
Company leases various facilities under operating leases which expire at various dates through June 2028. Under the terms of the
operating lease agreements, the Company is responsible for certain insurance, taxes and common area maintenance expenses. As of
January 1, 2019 the Company adopted ASC 842 requiring lessees to record assets and liabilities on the balance sheet. The Company
records rent expense on a straight-line basis over the terms of the underlying leases. Lease expense for the quarters ended September
30, 2019 and 2018 was $180,316 and $327,786, respectively.

On
May 14, 2018 and November 20, 2018, Andalucia 511, LLC, through its parent company, Project 1493, LLC remitted $50,000 payments
for the purpose of extending the option to purchase a building located at 1022 Ashford Avenue in Santuree, Puerto Rico. The option
gives the Company an exclusive ninety day option to purchase the building for $1,150,000, which can be executed by written consent,
specifying the closing date. The Company will also pay $6,000 rent for the duration of the option agreement. On March 27, 2019
a $100,000 payment was made to extend the option to May 31, 2019. On May 21, 2019 the Company elected to forego the purchase of
the building. The Company notified the Option holder of the decision, and released the $200,000 funds held in escrow to the Option
holder and terminated the agreement to purchase the building.

19

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

Risk
of Prosecution for Cannabis-Related Companies

A
company that is connected to the marijuana industry must be aware that cannabis-related companies may be at risk of federal, and
perhaps state, criminal prosecution. The Department of Treasury recently issued guidance noting: “The Controlled Substances
Act” (“CSA”) makes it illegal under federal law to manufacture, distribute, or dispense cannabis. Many states
impose and enforce similar prohibitions. As of September 30, 2019and November 19, 2019 the Company has not been notified of any
pending investigations regarding its planned business activities, and is not currently involved in any such investigations with
any regulators.

California
Operating Licenses

Effective
January 1, 2018 the State of California allowed for adult use cannabis sales. California’s cannabis licensing system is
being implemented in two phases. First, beginning on January 1, 2018, the State began issuing temporary licenses. On January 1,
2019 the State ceased issuing temporary licenses and began transitioning 2018 qualifying temporary licenses to provisional and
annual license status.

Green
Spirit Mendocino, LLC holds a provisional license which expires April 4, 2020. The provisional license was issued by the Bureau
of Cannabis Control (“BCC”) while the annual application is pending final approval. Point Arena Manufacturing, LLC
(“PAM”) holds a Non-Volatile Type 6 Manufacturing license was issued a provisional license on April 24, 2019 and expires
on May 15, 2020. Point Arena Distribution, LLC holds a Distribution Type 11 license issued by the BCC which expires on June 27,
2020.

Although
the possession, cultivation and distribution of cannabis for medical and adult use is permitted in California, cannabis is a Schedule-I
controlled substance and its use remains a violation of federal law. Since federal law criminalizing the use of cannabis preempts
state laws that legalize its use, strict enforcement of federal law regarding cannabis would likely result in our inability to
proceed with our business plan, especially in respect of our cannabis cultivation, production and dispensaries. In addition, our
assets, including real property, cash, equipment and other goods, could be subject to asset forfeiture because cannabis is still
federally illegal.

Nashville
Lease – Pure and Natural, LLC

On
February 8, 2019, Pure and Natural, LLC entered into an operating lease for a 2,525 square foot CBD retail store at 2306 West
End Avenue, Nashville, Tennessee for five years beginning February 1, 2019 and ending January 31, 2024. The initial lease obligation
will be $7,364 per month with an escalation of $1/per square foot for the remaining four years. The lease also states a security
deposit of $7,364 and for additional rent of $1,403 per month for common area maintenance expenses. The lease has one five-year
renewal option.

Sponsorship
Agreement – BYB Extreme Fighting Series LLC

On
February 20, 2019 Pure and Natural, LLC (“Pure”) and BYB Extreme Fighting Series, LLC (“BYB”) entered
into a Sponsorship Agreement (“Agreement”) to sponsor three events of the BYB EXTREME Series.

In
consideration of the sponsorship, Pure paid $30,000 on February 20, 2019. The Company will also issue $25,000 of its restricted
common stock per event. BYB commits to purchase $25,000 worth of Pure products no less than 45 days before each sponsored event.

20

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

Endorsement
Licensing and Co-Branding Agreement – Matt Sorum

On
February 27, 2019 Pure and Natural, LLC (“Pure”) and Matt Sorum (“Sorum”) entered into an Endorsement
Licensing and Co-Branding Agreement (“Agreement”), to develop, market, promote and sell a unique Matt Sorum Product
Line (“Licensed Products”) for dietary supplements derived from hemp containing 0% THC. The Agreement is for an initial
three year term, beginning February 27, 2019 and ending February 26, 2022. The Agreement may be extended with the same terms unless
either party provides a 60 day notice prior to the initial term.

Sorum
will be compensated (i) a royalty of 20% of Net Gross Margin of the Licensed Products; (ii) 20% of the Net Gross Margin of any
Products sold in connection with any commercial made by Sorum; and (iii) 30% of Net Gross Margin of Licensed Products. The Company
further agrees to issue Matt Sorum certain shares of common stock as further consideration under this Agreement. The Company agrees
to issue Matt Sorum 2,000 shares of its restricted common stock for each $1,000,000 in gross revenue derived directly from the
sale of Licensed Products up to a maximum of 100,000 shares during the Term of this Agreement (the “Compensation Shares”).
The Compensation Shares shall be issued at the end of each year of this Agreement.

Point
Arena Manufacturing and Distribution Lease

On
February 27, 2019, Point Arena Manufacturing, LLC and Point Arena Distribution, LLC (“Lessees”) entered into an operating
lease for a 600 square foot building at 165 Main Street, Point Arena, California for five years beginning March 1, 2019 and ending
February 28, 2024, for the purpose of manufacturing and distribution of cannabis products. The initial lease obligation will be
$3,000 per month, the first year rent of $36,000 due within 10 days of signing the lease. This payment has not been made as the
building has not been made ready. The rent will escalate 2.5% for the remaining four years of the base term. The lease has one
five-year renewal option.

Preferred
Partner and Advertising Agreement – Buzznog, LLC

On
March 4, 2019 Pure and Natural, LLC (“Pure”) and Buzznog, LLC entered into a Preferred Partner and Advertising Agreement
(“Agreement”) allowing Pure to sell cannibidiol products on Buzznog’s website, mobile applications and platforms.
Pure will pay Buzznog 20% of the gross profit margin on all products sold using Buzznog’s sites. The Agreement has a term
of three years from the moment of its coming into effect. If neither party announces termination of the Agreement at least thirty
(90) days before its stated expiration, the Agreement shall automatically extend for a period of one year, and renewing until
such time as either party provides notice of termination in accordance with the terms and conditions of the Agreement.

Palm
Springs Lease – Green Room Palm Springs, LLC

On
March 6, 2019, the Company entered into an operating lease for a 4,500 square foot cannabis retail store at 2155 N. Palm Canyon
Drive, Palm Springs, California for five years and six months beginning March 1, 2019 and ending August 31, 2024. The initial
lease obligation will be $6,000 per month for nine months; $10,000 for months ten through fifteen; and a 3% escalation of the
monthly lease for the remainder of the base lease. The Company paid a security deposit of $20,000 upon signing the lease.

21

GSRX
Industries Inc.

Notes
to Consolidated Financial Statements

September
30, 2019

Consulting
agreements

On
March 3, 2019 the Company entered into an engagement letter agreement with MH Legal Services, LLC (“MH”). In connection
with the engagement, the Company will pay MH compensation for in-house legal services as follows: (i) a monthly fee of Twelve
thousand five hundred dollars ($12,500); and (ii) and a one-time issuance of 150,000 shares of the Company’s restricted
common stock, par value $0.001 per share, due within thirty days of signing the engagement letter. MH terminated the engagement
with the Company on October 16, 2019.

On
March 29, 2019 the Company entered into a consulting agreement with John Grainer (“Grainer”). In connection with the
agreement, the Company will pay Grainer compensation for management, development and operation services as follows: (i) a monthly
fee of Fifteen thousand dollars ($15,000); and (ii) the Company will issue to Grainer two hundred thousand (200,000) restricted
common shares, par value $0.001 per share. One hundred thousand shares (100,000) will be issued promptly upon execution of the
consulting agreement. The remaining 100,000 shares shall accrue on a quarterly basis over a two (2) year period (12,500 per quarter),
commencing on the effective date of this Agreement and except for a change in control of GSRX, subsequent share distribution is
subject to your continued engagement. If this engagement is terminated prior to the accrual of any quarterly basis share accrual,
you shall not be entitled to receive the unaccrued shares.

Effective
July 1, 2019, the Company entered into an amended and restated executive consulting agreement with the Grainer. Pursuant to the
agreement, the Company agreed to pay the Executive Chairman compensation as follows: (i) a monthly cash fee of $10,000, payable
in accordance with the Company’s standard payroll practices; and (ii) 50,000 restricted shares of the Company’s common
stock, par value $0.001 per share, payable quarterly, effective immediately.

22

ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

Overview

This
Management’s Discussion and Analysis or Plan of Operations includes a number of forward-looking statements that reflect
Management’s current views with respect to future events and financial performance. You can identify these statements by
forward-looking words such as “may” “will,” “expect,” “anticipate,” “believe,”
“estimate” and “continue,” or similar words. Those statements include statements regarding the intent,
belief or current expectations of us and members of our management team as well as the assumptions on which such statements are
based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and
involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking
statements.

Readers
are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with
the Securities and Exchange Commission. Important factors currently known to management could cause actual results to differ materially
from those in forward-looking statements. We undertake no obligation to update or revise forward-looking statements to reflect
changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time. We believe that
our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made
that actual results of operations or the results of our future activities will not differ materially from our assumptions. Factors
that could cause differences include, but are not limited to, expected market demand for our products, fluctuations in pricing
for our products, and competition.

Unless
the context indicates or suggests otherwise, references to “we,” “our,” “us,” the “Company,”
or “GSRX” refer to GSRX Industries Inc., a Nevada corporation, individually, or as the context requires, collectively
with its consolidated subsidiaries.

GSRX
Industries Inc. was incorporated in Nevada under the name “Cyberspace Vita, Inc.” on November 7, 2006. The Company’s
original business plan was to create and conduct an online business for the sale of vitamins and supplements; however, Cyberspace
never generated any meaningful revenues. On May 5, 2008, Cyberspace discontinued its prior business and changed its business plan.

Following
discontinuation of its initial business plan, the Company’s business plan was to seek, investigate, and, if warranted, acquire
one or more properties or businesses, and to pursue other related activities intended to enhance stockholder value. The acquisition
of a business opportunity may be made by purchase, merger, exchange of stock, or otherwise, and may encompass assets or a business
entity, such as a corporation, joint venture, or partnership.

On
May 11, 2017, the Company entered into an Exchange Agreement with Project 1493, and the sole member of 1493, pursuant to which
the member transferred all of the outstanding membership interests of 1493 to the Company in exchange for 16,690,912 of its restricted
shares of common stock and warrants to purchase up to 3,000,000 shares of common stock at an exercise price of $0.50 per share.

As
a result of the Exchange Agreement, 1493 became a wholly-owned subsidiary of the Company, and the business of 1493 became the
business of the Company. The Company, together with its wholly-owned subsidiary, is in the business of acquiring, developing and
operating medical cannabis dispensaries in Puerto Rico.

On
May 12, 2017, the Company changed its name from “Cyberspace Vita, Inc.” to “Green Spirit Industries Inc.”
On June 22, 2018, the Company changed its name from “Green Spirit Industries Inc.” to “GSRX Industries Inc.”

Effective
August 28, 2019, eight shareholders of the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”)
with Chemesis International, Inc. (“Chemesis”), pursuant to which the shareholders exchanged 42,534,454 common shares
and 1,000 shares of preferred stock of the Company for 14,880,705 shares of Chemesis. As a result and as of the date hereof, Chemesis
owns 54,151,035 common shares or 67.03% of the Company.

23

As
of the date of this Report, we have financed operations through a combination of equity financings including net proceeds from
the private placements of stock. Although it is difficult to predict our liquidity requirements, based upon our current operating
plan, as of the date of this Report, we believe we will have sufficient cash to meet our projected operating requirements until
the end of 2019, at which point we anticipate nearing or reaching cash-flow breakeven. See “Liquidity and Capital Resources.”

RESULTS
OF OPERATIONS

Three
Months Ended September 30, 2019 and September 30, 2018

The
following table summarizes the results of our operations during the three months ended September 30, 2019 and 2018, respectively,
and provides information regarding the dollar and percentage increase or (decrease) from the current three-month period to the
prior three-month period:

Line Item

9/30/2019

(unaudited)

9/30/2018

(unaudited)

Increase

(Decrease)

Percentage Increase (Decrease)

Revenues

2,757,158

664,400

2,092,758

314.98

%

Cost of Goods Sold

1,431,656

409,348

1,022,308

249.74

%

Operating expenses

17,765,423

2,198,056

15,567,367

708.23

%

Net loss

(22,816,790

)

(1,655,745

)

(21,161,045

)

1278.03.

%

Loss per share of common stock

$

(0.31

)

$

(0.04

)

$

(.27

)

(675.00

)%

We
recorded a net loss of $22,816,790 for the three months ended September 30, 2019.

Revenue.
Total revenue for the three months ended September 30, 2019 and 2018 was $2,757,158 and $664,400, respectively. The increase of
$2,092,758, or 314.98%, was due to the revenues generated by operations of the five (5) Green Spirit RX dispensaries in Puerto
Rico, and The Green Room dispensary, CBD sales from Pure and Natural and retail sales from the Pure and Natural One kiosk during
the third quarter.

Cost
of Goods Sold. Total cost of revenue for the three months ended September 30, 2019 and 2018 was $1,431,656 and $409,348,
respectively. The increase of $1,022,308, or 249.74%, was due to an increase in inventory purchases of cannabis products, including
flowers, cream, oils and edibles, and cannabis-related accessories, including cartridges and pipes, related to the retail operations
of the six dispensaries and CBD products purchased during the third quarter necessary for the increase in revenues.

Total
Operating Expenses Selling, general, administrative and operating expenses for the three months ended September 30, 2019
and 2018 was $17,765,423 and $2,198,056, respectively. The increase of $15,567,367, or 708.23%, was primarily due to a significant
increase of the stock-based compensation; and an increase in operating expenses of the six dispensaries, labor, taxes, store supplies,
marketing and security expenses, professional fees and consulting fees.

Net
Loss. Net loss for the three months ended September 30, 2019 and 2018 was $22,816,790 and $1,655,745, respectively. The
increase of $21,161,045, or 1278.03%, was primarily due to an increase in revenues offset by the increase of stock-based compensation,
increases in cost of goods sold, operating expenses related to retail operations of the six dispensaries and CBD location.

Nine
Months Ended September 30, 2019 and September 30, 2018

We
recorded a net loss of $28,099,596 for the nine months ended September 30, 2019.

Revenue.
Total revenue for the nine months ended September 30, 2019 and 2018 was $9,062,462 and $1,020,026, respectively. The increase
of $8,042,436, or 788.45%, was primarily due to operations increasing from four to six retail dispensaries, website and retail
sales of CBD products.

Cost
of Goods Sold. Total cost of revenue for the nine months ended September 30, 2019 and 2018 was $4,910,120 and $610,526,
respectively. The increase of $4,299,594 or 704.45%, was due to operations increasing from four to six retail dispensaries, website
and retail sales of CBD products.

24

Total
Operating Costs. Selling, general, administrative and operating expenses for the nine months ended September 30, 2019
and 2018 was $25,609,037 and $14,517,450, respectively. The increase of $11,091,587, or 76.40%, was primarily due to significant
increase in stock based compensation paid to officers, directors and consultants for services rendered and increase in overhead
expenses incurred to operate the business as additional locations opened.

Net
Loss. Net Loss for the nine months ended September 30, 2019 and 2018 was $28,099,596 and $13,647,636, respectively. The
increase of $14,451,960, or 105.89%, was primarily due to stock based compensation paid to officers, directors and consultants
for services rendered and overhead expenses incurred to operate the business as additional locations opened.

Off
Balance Sheet Arrangements

We
do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital
resources that are material to an investor in our securities.

Seasonality

Our
operating results were not affected by seasonality.

Inflation

Our
business and operating results are not affected in any material way by inflation.

Critical
Accounting Policies

The
Securities and Exchange Commission issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About
Critical Accounting Policies” suggesting that companies provide additional disclosure and commentary on their most critical
accounting policies. In Financial Reporting Release No. 60, the Securities and Exchange Commission has defined the most critical
accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating
results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates
of matters that are inherently uncertain. The nature of our business generally does not call for the preparation or use of estimates.
Due to the fact that the Company does not have any operating business, we do not believe that we have any such critical accounting
policies.

25

LIQUIDITY
AND CAPITAL RESOURCES

We
have never reported net income. We incurred net losses for the nine months ended September 30, 2019 and 2018 of $28,099,596 and
$13,647,636, respectively, and have an accumulated deficit of $70,421,832 as of September 30, 2019.

As
of September 30, 2019, the Company had $1,110,139 cash on hand as compared to $1,313,645 as of December 31, 2018. For the nine
months ended September 30, 2019, the Company reported loss from operations of $28,099,596 and net cash decrease of $203,506.

Sources
of Liquidity

We
have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since May 2017, we have
raised capital through private sales of our securities and joint ventures. Our future success is dependent upon our ability to
achieve profitable operations and generate cash from operating activities. There is no guarantee that we will be able to generate
sufficient revenue and/or raise capital to support our operations.

During
the nine months ended September 30, 2019, we financed our operations through the remaining proceeds from various private placement
offerings conducted by the Company during 2018 and the first, second and third quarters of 2019. On March 8, 2019, the Company
conducted a private placement, pursuant to which sold 621,600 shares of the Company’s common stock at a purchase price of
$1.25 per share, resulting in net proceeds to the Company of $777,000. On June 4, 2019, the Company conducted a private placement,
pursuant to which it sold 400,000 shares of the Company’s common stock at purchase price of $0.50 per share, resulting in
net proceeds to the Company of $200,000. On July 5, 2019, the Company conducted a private placement, pursuant to which it sold
412,000 shares of the Company’s common stock at purchase price of $0.50 per share, resulting in net proceeds to the Company
of $206,000.

We
anticipate requiring additional capital for the continued development and implementation of our business plan, including the remaining
build-out of our facilities in California, completing construction on our dispensaries in Puerto Rico, and working capital for
our retail dispensary operations.

We
will be required to raise additional cash through public or private financing, additional collaborative relationships or other
arrangements until we are able to raise revenues to a point of positive cash flow. We believe our existing and available capital
resources will be sufficient to satisfy our funding requirements through the fourth quarter of 2019. However, we continue to evaluate
various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds,
including obtaining loans for real estate purchases and selling common stock. There is no guarantee that we will be able to generate
enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that it will be available to
us on acceptable terms, on an acceptable schedule, or at all.

The
issuance of additional securities may result in a significant dilution in the equity interests of our current stockholders. Obtaining
loans, assuming these loans would be available, will increase our liabilities and future cash commitments. There is no assurance
that we will be able to obtain further funds required for our continued operations or that additional financing will be available
for use when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the
additional financing on a timely basis, we will not be able to meet our other obligations as they become due and we will be forced
to scale down or perhaps even cease our operations.

Operating
Cash Flows. Net cash used in operating activities for the nine months ended September 30, 2019 was $1,972,458 which was
due to the net loss from operations, net of common stock issued for services and unrealized loss on investments, abandonment of
option to purchase a building and write off of leasehold improvements and rent deposits; and the decrease of accounts receivable
and inventory. The loss was offset by the increase in prepaid inventory, prepaid expenses, accounts payable, accrued expenses
and current portion of lease liability.

Investing
Cash Flows. Net cash used in investing activities for the nine months ended September 30, 2019 was $918,411, which was
due to increase of deposits, purchase of leasehold improvements and equipment; legal fees on patent application costs; investments
in closely held businesses and construction on facilities still not put into service.

Financing
Cash Flows. Net cash provided by financing activities for the nine months ended September 30, 2019 was $2,687,363, which
was due to our March, June and July 2019 capital raises, sale of equity investments in California subsidiaries and contributions
by non-controlling interests.

Material
Capital Expenditure Commitments

The
Company has upcoming capital commitments:

Remaining construction of three remaining dispensaries in Puerto Rico

$

600,000

Purchase of equipment, furniture and fixtures and finish out of Palm Springs dispensary

$

600,000

Purchase of equipment in Point Arena

$

80,000

26

The
capital committed is for construction of existing leased units in Puerto Rico, which are currently in different phases of construction.
The Company estimates construction to be completed by March 31, 2020. However, no assurance can be given. The Company plans to
use current funds to complete construction of its dispensary locations in Puerto Rico. The Company estimates construction of Palm
Springs dispensary to be completed in the second quarter 2020. However, no assurance can be given. The Company estimates purchase
of equipment and beginning of operations of manufacturing in Point Arena to begin in the fourth quarter 2019. However, no assurance
can be given. The Company has capital raises open for the Palm Springs dispensary and Point Arena manufacturing operation. As
of September 30, 2019, approximately $1,070,341 has been raised.

ITEM
3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As
a “smaller reporting company” as defined by item of regular 8-K, the Company is not required to provide information
required by this item.

ITEM
4. CONTROLS AND PROCEDURES

Evaluation
of Disclosure Controls and Procedures

Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and
Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of March
31, 2019. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure
controls and procedures are not effective to ensure that information required to be disclosed by us in the reports we file or
submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities
and Exchange Commission’s rules and forms and that our disclosure and controls are not designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to
our management, including our principal executive officer and principal financial officer, or persons performing similar functions,
as appropriate to allow timely decisions regarding required disclosure.

The
matters involving internal controls and procedures that our management considered to be material weaknesses under the standards
of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee, resulting in ineffective oversight
in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent
with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes.

Management
believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However,
management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board
of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures,
which could result in a material misstatement in our financial statements in future periods.

Changes
in Internal Control Over Financial Reporting

There
have been no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) under the Securities
Exchange Act) that occurred during the period covered by this quarterly report that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

27

PART
II - OTHER INFORMATION

ITEM
1. LEGAL PROCEEDINGS

There
are no legal proceedings which are pending or have been threatened against us or any of our officers, directors or control persons
of which management is aware.

ITEM
1A. RISK FACTORS.

As
a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information
required by this Item.

ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES

During
the quarter ended September 30, 2019, the Company conducted a private placement, pursuant to which it sold 412,000 shares of Common
Stock, at a purchase price of $0.50 per share, to an investor, resulting in net proceeds to the Company of $206,000. The shares
were issued pursuant to Regulation D under the Securities Act of 1933, as amended (the “Act”).

The
certification attached as Exhibit 32.1 accompanying this Quarterly Report on Form 10-Q pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, shall not be deemed “filed” by the Registrant
for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

29

SIGNATURES

In
accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.